That little one who is cooing and giggling in the bassinet – as hard as it is to believe right now – is going to grow into a fully fledged adult with some adult responsibilities like the ones you have right now! Now while that might not be a thought you want to entertain because that means that baby bird has to leave you and go and try to figure life on their own, it is still reality! That being said – you want to make sure that when they do leave, they have a place to launch from. You also want to be sure they have an understanding of not only how to make money – but how to save it and use it. Getting them a high-interest savings account is the perfect way to do that!
What Are High-Interest Accounts?
Say your kid receives $100 as a gift for their birthday. Instead of letting it gather dust in a non-interest earning savings account or letting them blow it on candy, you can open a high-interest account for them. With time, that $100 can grow. That, put simply, is what a high-interest account is — a way to make money work for you or your little one in this case.
The Importance of Starting Early
The key here is time. The earlier you start saving on your child’s behalf, the more time their money has to grow. This is where high-interest savings accounts come in. You start saving for your child at a young age, and all that saved money has the potential to accumulate interest, which means you (or they) have more money in the end. Not to mention the financial education and responsibility your child will gain in the process, which they’ll need in adulthood.
Think about your child watching their savings grow every month as they learn about financial goals, patience, and delayed gratification. Gift to last a lifetime? We think so!
Teaching Financial Literacy Through Hands-On Experience
One of the best ways to help your child learn about money is experience. That is, opening a high-interest account in his or her name and letting them begin to see themselves as skilled in managing their money. Here are some ideas to help kids engage:
- Savings Goal: Work with your child to set a savings goal — agree to what they want most and target the amount. The goal might be for a particular toy, a trip to the amusement park, etc. Help show them how a high-interest account will make it that much faster.
- Seeing it Grow: Help them understand how to follow their savings. A simple chart or graph helping to see savings grow is a fun way to help understand that money grows.
- Make “deposits” : Have your child deposit just a portion of his or her allowance or earnings in his or her high-interest account. This makes the point that saving is as important as putting your money to work.
The Power of Compound Interest
Now, what’s even cooler — compound interest! This is the idea of earning interest not only on the principal you’ve put in but also on interest already deposited into the account. The longer your kid saves, the more “free” money they’re going to make. It’s like a snowball, building and building and building on itself!
For example, say grandpa gave little Sandy $100 for their birthday – in a high-interest account with 3% p/a, little Sandy would have over $180 after 21 years without even continuing to add to it. Now, that gives you an idea of what is possible by tucking away their work money and gifts over time. But this is just the beginning; with tools like Koho – you can both learn to manage this process together.
Choosing the Right High-Interest Account
When looking for high-interest accounts, here are some things to consider:
- Interest rates
- Fees
- Accessibility
Some accounts charge fees or require a minimum balance to have the rate applied. While a kids saver account can be a great option, many charge exorbitant fees and have very low interest rates – thus, maybe get out of those exclusive kid accounts and go looking for more grown-up options.
A Financial Gift That Lasts a Lifetime
Let’s look into the future for a moment – imagine your child has now graduated college, and you both go over to their account and break the “online piggy bank,” that is their HISA and they have a nest egg there that allows them to start their life as they leave your home – and not only that, they will even make smart money decisions! This vision could be a reality if you start your child’s HISA now.